Standing Committee D

[Mr. Eric Illsley in the Chair]

Commonhold and Leasehold Reform Bill [Lords]

Clauses 74 and 75 ordered to stand part of the Bill.

Clause 76 - Notice inviting participation

William Cash: I beg to move amendment No. 72, page 37, line 15, at end insert:
'(3A) Regulations shall prescribe that a notice to participate shall include, or be accompanied by, a prescribed statement setting out the principal responsibilities and obligations which the company will assume as the manager of the premises and setting out in particular the relevant provisions of the service charge residential management code made by the Royal Institute of Chartered Surveyors or such other code as may be approved by the Secretary of State under the terms of section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 (c. 28).'

Eric Illsley: With this it will be convenient to take amendment No. 56, in clause 78, page 38, line 37, at end insert:
'( ) It must include an offer of cover to provide for the RTM company directors' and officers' liability insurance, fidelity guarantee and professional indemnity insurance.'

William Cash: I welcome you to the Chair of the Committee, Mr. Illsley. We complimented Mr. Hurst, and I have no doubt that we will be able to confer the same congratulations on you, as we discussed the Land Registration Bill under your chairmanship.
 The amendments deal with the regulations, and amendment No. 72 states that the regulations will prescribe that a notice to participate shall include, or be accompanied by, a prescribed statement that sets out the main responsibilities and obligations that the company will assume as the manager of the premises, and sets out the relevant provisions of the service charge residential management code made by the Royal Institution of Chartered Surveyors or such other code as may be approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993. 
 It goes without saying that the right to manage is important, and I think that all members of the Committee would agree. The right to manage places considerable responsibilities on the tenants who decide to exercise it. It is therefore only right that the tenants should be in a position to know with what they are faced. That crucial question is at the root of the amendment. The RICS is a chartered body of great distinction that has been going for a long time, and it has accumulated a vast amount of experience in the pursuit of its charter. It has produced a management code that reflects the professional view of those who have been given the privilege of chartered status. A trade association will pursue its own interests exclusively. Those of us in the Committee who are 
 familiar with chartered bodies know that their first objective must be to pursue the public interest under their own charters subject to revocation, amendment or even suspension by the Privy Council. We do not need to go into all the ramifications, but it is important to bear in mind that the management code in the amendment is prescribed by the RICS, which clearly sets out what managers of premises should do. 
 Blocks of flats must be properly managed, and the prescribed standards should be improved. The right to manage would be entirely illusionary if its exercise did not lead to improvements in the running of blocks of flats, but nothing in the Bill prescribes that the right to manage will improve such management. That is left in the air. The Minister may correct me, but I do not believe that she will be able to do so. I have criticised the fact that we have not seen the regulations, but I have now come up with a regulation myself. At least I have set out in an amendment what it should comprise. 
 I shall wait to hear what the Minister has to say, but the Government do not propose any legislation to regulate managing agents. I have tabled a new clause later in the Bill that would tackle that question. Some agents are notoriously bad, and some are very good. We need not debate that point, because it is pretty obvious and well known throughout the land. I cannot understand what objections there could be to a minimal requirement to ensure that tenants at the very least know what good management of blocks of flats involves, what they need to do and what is expected of them. 
 I am proposing a simple measure. It is common sense that there should be a code of the sort that I have described. I do not say that it should be the RICS code, but it could be or a similar one approved by the Secretary of State. I am putting the ball into the Minister's court and asking why not?

Adrian Sanders: I welcome you to the Chair, Mr. Illsley.
 I support what the hon. Member for Stone (Mr. Cash) has said, although it may be covered by the guidance. However, any guidance needs to lay out clearly, coherently and in simple English what tenants' responsibilities will be if they set up a company. The guidance needs to be expressed in such a way that people are not put off. As I have said previously, I am concerned that people will be worried about taking on the responsibilities and will therefore not bother, although the legislation's real purpose is to encourage people to take a greater interest in, and control and management of, their housing. I hope that a body such as the Plain English Campaign can be consulted on the guidelines that are issued, so that tenants are clear about their responsibilities but are not discouraged.

Sally Keeble: I, too, welcome you to the Chair, Mr. Illsley.
 This group of amendments relate to the service of a notice of invitation to participate in acquisition of the right to manage. The hon. Member for Stone referred 
 to the regulation of managing agents, on which we are looking to produce a consultation paper. Clearly, there would have to be careful discussions before any such measure was ventured, but many hon. Members have raised the issue repeatedly. 
 Amendment No. 72 would require that information about the obligations of the right-to-manage company be set out in the invitation to participate. The hon. Member for Stone is concerned that leaseholders should be able to exercise their right properly. We will consider what should be included in management responsibilities in the invitation to participate. 
 The proposal in the amendment does not strike the correct balance. For example, it does not say what principal means. That is crucial, bearing in mind the points of the hon. Member for Torbay (Mr. Sanders) about plain English and easily accessible information. It does not say how much of the relevant code of practice the right-to-manage company would be expected to repeat in the invitation. Without that being properly set out, there would be tremendous scope for argument over whether the provision had been complied with. 
 It is wrong to make an explicit link of that sort between the responsibilities of the right-to-manage company and the approved codes of practice. The responsibilities of a right-to-manage company will derive from the Bill and from the terms of all relevant leases. The codes that we will produce—I completely take the point that they must be easily understandable—will supplement that by making clear the standard and degree of management that we expect. However, they will not impose any new obligations. Thus the proposed requirement to refer to the codes of practice is not necessary. 
 There is a difficult balance to be struck. We want leaseholders to be aware of what they are taking on, but we do not want to overburden them with requirements before they can acquire the right, or put in place subjective requirements that would allow scope for dispute. As such, we believe that the flexible requirements provided in the Bill are the best way to deal with the issue. 
 Through regulations, we already have the power to prescribe the form and content of the invitation to participate. We propose using the power to include a reference in the notice. Furthermore, that would allow us to ensure that the requirements were clear and unambiguous and that they could be changed if it proved that the correct balance had not been struck. I hope that that reassures the hon. Member for Stone that we are alive to the issues that he raised. 
 On amendment No. 56—

William Cash: I did not refer to amendment No. 56, which is an amendment to clause 78. It would prescribe further requirements to the contents of the claim notice. It does not fit in conveniently at this point, but I am sure that it will be fine to deal with its substance now. I look forward to the Minister's reply.

Sally Keeble: At one stage, two identical amendments had been tabled, probably because of a mix-up. One of them, amendment No. 70, was withdrawn.
 Amendment No. 56 would require the right-to-manage company to include details in the claim notice about liability insurance. The amendment would make the provision of liability insurance a qualifying requirement for the right to manage through the back door. Therefore, it undercuts the philosophy behind the right to manage; namely, that leaseholders should have a say in the management of their block by virtue of their investment in the property. That is a simple and widely supported principle, which I am sure will go a long way towards giving leaseholders an effective remedy for many of the issues that they face as directors, without having to go to the full extent of enfranchising. As has been said, we see no justification for putting in place requirements that discriminate against the RTM company by making it subject to more stringent requirements than would apply to any other leasehold manager. 
 Secondly, the proposed requirement will be largely worthless, as it says nothing about the level of insurance that is to be offered. The RTM company could therefore come forward with a laughable and negligible insurance offer and still comply with the letter of this requirement. On that basis, and with the assurance that I have given, I hope that the hon. Gentleman will withdraw his amendment.

William Cash: In all the circumstances, and having heard what the Minister has to say about the question of regulation, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Eric Illsley: Order. The hon. Gentleman was absolutely right, amendment No. 56 is an amendment to clause 78. It would appear from the Chairman's draft that it was originally linked to amendment No. 76, which has not been selected, so it has been listed for debate with clause 76. If the hon. Gentleman wishes to refer to it during the debate on clause 78, the Chairman will allow him to do that.
 Clause 76 ordered to stand part of the Bill. 
 Clause 77 ordered to stand part of the Bill.

Clause 78 - Contents of claim notice

William Cash: I beg to move amendment No. 57, in page 38, line 41, leave out 'one month' and insert 'six months'.

Eric Illsley: With this it will be convenient to take the following amendments: Government amendment No. 77.
 Amendment No. 58, in page 38, line 41, at end insert 
', or must state that the RTM company intends to apply to the leasehold valuation tribunal for it to acquire the right to manage at an earlier date'.
 No. 59, in page 39, line 5, at end insert— 
'(10) Regulations may provide for the procedure for an RTM company to apply to a leasehold valuation tribunal for the acquisition of the right to manage earlier than six months after the relevant date.'.
 Government amendments Nos. 78 to 81.

William Cash: These amendments deal with the question that I raised on Second Reading about the important issue of the handover provisions as part of the RTM scheme. It seems that the problem is that the Government have not really given the fullest thought to what would happen on a day-to-day basis in the management of blocks of flats.
 I will give a good example. A landlord has instructed some builders to do some repair work on the premises, and it is due to take two months. The RTM company serves a claim notice on the landlord, taking effect in one month, which is in the middle of the work being carried out by the builders. What effect does serving a claim notice have on the landlord's contract with the builders? There are many provisions in the Bill relating to management contracts and subcontracts, but what about contracts with a builder? There are two possibilities. The RTM company takes over the contract with the builder, or the landlord retains the responsibility for the existing contract with the builders. 
 The first instance involves a different contracting partner being imposed on the builder. As RTM companies are to have no share capital—which we mentioned before when dealing with questions relating to companies limited by guarantee, and I said that there was a great distinction between the two—builders may be unprepared or it may not be regarded as worth while to allow the contract to be moved, and the builders will go. Furthermore, the RTM company will be coming straight on to a new project in progress. There are provisions in the Bill for information to be exchanged between the landlord and the RTM company, but anyone who knows anything about building work knows that the taking over of works by builders in mid-flow is extremely difficult. I expect we all have experience of that. It is a recipe for disaster. 
 The second possibility involves the landlord remaining the contracting party for all the existing contracts. That is contrary to the idea of the right to manage. Theoretically, a landlord could remain liable to the builder while the management function was transferred to the RTM company. The Bill provides for the landlord to pay what are described as accrued uncommitted service charges. It may be thought that the landlord will be able to retain service charges to pay the contracts in which he is already engaged. However, when split up, that responsibility is itself a recipe for further problems. In that situation, one would ask who would be liable for the excess costs. 
 The Bill clearly needs to be amended. I trust that we will be able to arrive at an accommodation in relation to the Government's amendments. I await with interest the Minister's proposals. These are detailed and practical questions. It is important that the Minister gives us a full explanation of the Government's amendments so that we end up with a handover arrangement that will work.

Sally Keeble: The hon. Gentleman mentioned two issues, one of which was handover arrangements. He is right that good workable arrangements are needed. I hope that what I have to say will provide some comfort. The other issue was the provision for contracts, which is dealt with elsewhere. I shall not deal with that matter now because we shall cover it when debating later clauses and, no doubt, later amendments.
 This is a complex issue and it might help if I go through the clauses that we are amending. Although the amendments are grouped together they relate to different clauses. I shall then set out the rationale behind the Government amendments. 
 Clause 78 deals with the claim of the landlord to exercise the right to manage, where a date must be given. Clause 88 deals with the acquisition date, which is when the RTM company takes over responsibility. At present, that is set at one month. I believe that is the issue to which the hon. Gentleman was referring; he feels that one month is not adequate. I can give him some comfort on that matter. 
 Clause 91 deals with the duty to provide information about the running of the property, which the freeholder would have. The time period currently stands at three months. Clause 92 deals with handing over the money, which is one of the crucial provisions. The date given is three months. The figure quoted in clauses 91 and 92 is four months, but there is a simple answer—that is what we get when we add the three month and one month periods together. 
 We are considering the arrangements for the handovers and dates, and the need for clarity. The RTM company would take over responsibility on the acquisition date and then wait three months before it received the information and money if the freeholder kept to the letter of the legislation. These dates constitute the minimum, and there is no reason why they could not be extended voluntarily. As things stand, there is a mismatch. 
 The purpose of amendments Nos. 77 to 81 is to increase the gap between determination of the right to manage and the acquisition of that right from one to three months. That would bring it in line with information and money. They are minimum dates, and their alignment is probably the hon. Gentleman's main concern in terms of possible confusion and difficulty of implementation. The vast majority of responses to our consultation agreed with this approach. We are keen to ensure that the procedures strike the correct balance between facilitating quick acquisition of the right and ensuring that all parties, including the RTM company, have enough time to prepare themselves for the transition. We believe that we have found that balance and achieved the correct alignment of the different aspects of handover. 
 During the proceedings in another place, there was much discussion about handover arrangements upon acquisition of the right to manage. The procedures for requiring right to manage were originally designed to deliver a speedy handover of management responsibilities when that is what the leaseholders want. The arrangements recognise also that landlords 
 and other existing managers will need time to arrange their affairs before they are able to hand over management documents and service charge moneys. That means that if leaseholders wanted to do so, they could take over management without necessarily having all supporting information in place or access to funds. Concerns have been expressed about that, because of the mismatch of dates, and the Government have been pressed to ensure that management, accrued service charges and information are all handed over on the same day. 
 Concerns have also been expressed that the current arrangements have insufficient regard to the practicalities of dealing with existing contracts. The RTM company and contractors could often have only one month in which to negotiate transfer of existing contracts or enter into new contracts. As I said, some more detailed aspects of the contract arrangements are dealt with elsewhere. The Government have listened to the concerns that have been expressed and, after consulting interested parties, we have introduced amendments to provide more time, to align the different dates and to deal with the concerns that have been raised. 
 The amendments of the hon. Member for Stone would deal with acquisition to management, but not, as they stand, with the handover of information or money. Under his proposals, one would be able to get the money before responsibility, which would be a recipe for even greater difficulties. On that basis, and given that we have listened to practical concerns and introduced proposals to deal with them, I ask the hon. Gentleman to withdraw his amendment.

William Cash: I am grateful to the Minister for her explanation of the Government's amendments. We are making progress because on this matter, if not on many others, there has been some response. I thank the Minister, and I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 77, in page 38, line 41, leave out 'one month' and insert 'three months'.—[Ms Keeble.] 
 Clause 78, as amended, ordered to stand part of the Bill. 
 Clauses 79 to 87 ordered to stand part of the Bill.

Clause 88 - The acquisition date

Amendments made: No. 78, in page 44, line 22, leave out 'one month' and insert 'three months'. 
 No. 79, in page 44, line 25, leave out 'one month' and insert 'three months'.—[Ms Keeble.] 
 Clause 88, as amended, ordered to stand part of the Bill. 
 Clause 89 ordered to stand part of the Bill.

Clause 90 - Duties to give notice of contracts

William Cash: I beg to move amendment No. 60, in page 46, line 35, at end add—
'(8) Unless the contractor party and the RTM company otherwise agree in writing within a period of 28 days after service of a contract notice, the management contract shall continue in full force and effect from the acquisition date as if it had been made between the contractor party and the RTM company and not with the manager party, save that the RTM company shall have no liability under it for breaches on the part of the manager party occurring prior to the acquisition date.'.
 The clause provides that the manager party is under an obligation to give notice in relation to an existing management contract to the contractor party, which is known as the contractor notice, and to the RTM company, which is contract notice. There is a range of requirements about how those two notices must be given and what the contractor notice must do. For example, it must give details to identify the contract, state that the right to manage the premises is being acquired by an RTM company, and give the name and registered office of the RTM company and the acquisition dates. 
 The clause does not cover one important matter, which my amendment describes. There is a requirement to provide for such a matter and avoid difficulties that would otherwise arise. I cannot improve on the description in the amendment, so I will not try. I will be interested in the Minister's reply.

Adrian Sanders: I will be interested in the Minister's reply too, because it strikes me that the Government are legislating for a clean break. There may be a good case for that, but some contracts could be easily transferred from one entity to another without the break.

Sally Keeble: I shall stick closely to my notes, because the underpinning law is that of contract, with which the hon. Member for Stone will be familiar. It is concerned with that wonderful term ''frustration'', which has an obvious meaning—one often shared by members of spending committees—and a legal meaning. I shall read my response. If hon. Members have particular queries, I would be happy to send them a written response. It would be unwise to discuss the details of contractual law because it could be used in a damaging way.
 The amendments relate to what happens to existing management contracts when the right to manage is acquired. If a party to a contract is placed, by events outside his control, in the position of being unable to fulfil his obligations or role under that contract, the normal effect of contract law will be that the contract falls as frustrated. One such case is where the operation of the law intervenes to prevent someone being able to fulfil part of a contract. 
 That will happen in most instances where the right to manage is acquired. Subject to having met the qualifying rules, leaseholders have the right to take over management. A landlord will not be able to prevent a qualifying group from doing so. Acquisition 
 of RTM is therefore a compulsory, not voluntary, transaction. 
 Furthermore, clause 95(2) provides that following the acquisition of the right, the landlord cannot continue to exercise any duties that have become ''management functions'' of the RTM company. Operation of the law will therefore mean, for example, that the landlord will no longer be responsible for the maintenance of the property. That strongly suggests that a contract delegating that function will tend to be regarded in most cases as frustrated by the acquisition of the right to manage: an event outside the landlord's control. I am not suggesting that that would necessarily be the position in every case. The application of the law of frustration, and the law of contract generally, will depend upon the circumstances of the case. 
 If a contract is frustrated in such circumstances, each party to the contract will have the right to recover moneys due to them for what has been done up to the point of frustration. The contractor will be able to recover from the other party all sums due for the work that has been done up to the point of frustration. The other party will in turn be able to recover from the contractor any sums advanced prior to that point for works that will not be carried out. Neither party, however, will have the right to seek compensation for profits forgone or other such matters as a result of the frustration of the contract: that is both right and fair. 
 Some believe that there would be circumstances in which the employment of a particular contractor, such as a gardener, would transfer to the RTM company. We agree, but that will be the result of employment law, particularly the rules that relate to protection of employment following transfer of an undertaking—under the Transfer of Undertakings (Protection of Employment) Regulations 1981—rather than general contract law. Nothing in the Bill overrides such employment rights and we would not want to do so. Whether a particular employee or contractor would pass to the RTM company will depend upon whether the acquisition of the right to manage would constitute a transfer of undertaking for those purposes. It is a complex area and the application or otherwise of TUPE will depend upon the individual circumstances of the case. However, we are content that, if it does apply, the employment of the individual in question should pass to the RTM company. 
 Amendment 60 provides that, rather than being frustrated, all contracts should be novated. Such an approach would have some merits at first glance. It would ensure that the RTM company was supported from day one by a network of existing contractors: cleaners, gardeners, lift maintenance companies and so forth. It would also give existing contractors certainty that their services will continue to be required, at least initially, after the management of the block changes hands. We recognise that the right-to-manage company will sometimes be perfectly happy to work with the landlord's contractors, and vice-versa. Where that applies, the Bill provides an opportunity for it to happen. 
 Clauses 89 and 90 together provide for notice to be served to ensure that contractors know that the right 
 to manage is to be acquired and that the RTM company knows who the contractors are. Either side will then be able to initiate negotiations for the RTM company to take over the responsibilities and obligations of the landlord and the contract, thereby allowing it to carry on after the acquisition of the right. We do not want to force the RTM company and the contractors into a contractual relationship against their will. Nor do we want to allow the landlord to enter into sweetheart contracts with contractors that would be binding on the RTM company, which would be the consequence of amendment No. 60. 
 The rights of an RTM company have been discussed, but the contractor's rights are also important. He will have contracted with the landlord and might not want to carry on, at least on the same terms, with the RTM company. We must allow for that possibility and recognise that contractors also have the right to decide what is in their best interest. Our approach strikes a fair balance. The machinery set up by clauses 89 and 90 will allow contractors and the company to decide, in advance of right to manage being acquired, whether to continue a particular contract. Only when they cannot reach an agreement will contracts be frustrated by default. We have given careful thought to this matter and are satisfied that it is the right approach, so I ask the hon. Gentleman to withdraw the amendment.

William Cash: After that dissertation of law, which would have done credit to some of the worthy tomes I have had to study, it is right to pay tribute to the Minister and to those compiling the law behind the scenes. However, when it comes before the courts—and if any subject does, I suspect that it will be this one—the proof of the pudding will be in the eating. Best efforts have been made to resolve the matter—our approach is to go down the route of novation, and I was encouraged to hear the Minister say that it had some merit—but we are now locked into a position. With her hand on her heart, I doubt whether the Minister can say that the provision will produce exactly the desired results. If Lord Denning—or another lawyer, like him, always searching for the essence of differences—were still with us, unpredictable consequences would be expected.
 Time will tell. It is the Government's responsibility to get the Bill right, and we have heard the dissertation. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 90 ordered to stand part of the Bill.

Clause 91 - Duty to provide information

Amendment made: No. 80, in page 47, line 9, leave out from first 'date' to end of line 10.—[Ms Keeble.] 
 Clause 91, as amended, ordered to stand part of the Bill.

Clause 92 - Duty to pay accrued uncommitted

Amendment made: No. 81, in page 47, line 34, leave out from beginning to 'must' in line 37 and insert 
'The duty imposed by this section'.—[Ms Keeble.]
 Clause 92, as amended, ordered to stand part of the Bill. 
 Clauses 93 to 95 ordered to stand part of the Bill.

Clause 96 - Functions relating to approvals

William Cash: I beg to move amendment No. 73, in page 49, line 18, at end insert—
'( ) The RTM Company must not grant an approval in relation to the making of alterations, improvements or change use which will diminish the reversionary value of the landlord's interests.'.

Eric Illsley: With this we may take amendment No. 71, in page 49, line 22, leave out
'the making of structural alterations or improvements or alterations of use.'.

William Cash: The clause sets out the procedures to be followed under the RTM where an approval is required under the lease. Subsection (1) states:
''This section and section 97 apply in relation to the grant of approvals under long leases of the whole or any part of the premises.''
 Although I suspect that the words ''reversionary value'' in amendment No. 73 might trigger a state of excitement in my hon. Friend the Member for Solihull (Mr. Taylor), I have now mentioned them. It would be inappropriate—an extraordinary state of affairs—for a RTM company to be able to grant an approval in the circumstances I described which would diminish the reversionary value of the landlord's interest. 
 In the circumstances described in subsection (2), amendment No. 73 would exclude the making of structural alterations or improvements or alterations of use from the requirement to give 30 days' notice under the provisions of clause 96(4). It is a reasonable proposition given the importance of ensuring that an approval is granted in reasonable circumstances, and I await the Minister's comments on the amendment.

Sally Keeble: Amendment No. 73 would prevent a RTM company from granting an approval that would diminish a landlord's reversionary interest. We accept that it is important that landlords' interests are safeguarded against the granting of inappropriate approval. However, the Bill already addresses that matter satisfactorily. Clause 96 provides that where the right to manage is acquired, the right-to-manage company takes on primary responsibility for approvals that are required under the leases. However, where the RTM company proposes to grant a consent, clause 96(4) provides that it must first give written notice of that intention to the relevant landlord. The landlord then has the opportunity to decide whether to agree or
 object to the granting of the consent and to notify the RTM company accordingly.
 When a landlord decides that he wishes to object, the RTM company may grant approval only if one of two conditions is met: the landlord must agree to withdraw the objection, or, alternatively, an application must be made to a leasehold valuation tribunal for its agreement that the approval should be granted. Those arrangements already make admirable provision for safeguarding the landlord's legitimate interest. A landlord who believes that his reversionary interest would be damaged by the granting of an approval is able, first, to ensure that the RTM company does not disregard that and grant the approval itself and, secondly, to seek to persuade a LVT that the approval should not be granted. In the latter case, one argument that the landlord could place before the tribunal would be that the approval would unduly harm his reversionary interests. 
 The amendment adds nothing to the arrangements, and our first concern about it is that what will or will not diminish the reversionary value of the landlord's interests is unclear and subjective. It could be argued that any consent to improvement or alteration might diminish the immediate value of the landlord's reversion. For example, would that mean that a RTM company should never grant such an approval? Would the amendment mean that the company should not grant an approval, even if the landlord agreed that approval should be granted? 
 We are not clear what would happen if the RTM company decided that it wished to grant an approval on the basis that it does not believe that the reversionary interest would be affected but the landlord alleges otherwise. The issue is who would adjudicate in such disputes and why it would be better than the present arrangements of allowing all disputed approvals to be LVTs. 
 The arrangements in the Bill are the most sensible and practical way to deal with the issue addressed in the amendment, which I hope will be withdrawn.

William Cash: The question of what is sensible and practical is often a matter of dispute. I do not wish to add to what I have said, but I am glad the Minister recognises that there is a problem. She believes that the Bill adequately caters for the issues raised; I am not satisfied that that is so, and I shall press the amendment to a Division.
 It may have been an oversight, but the hon. Lady did not mention Government amendment No. 82 in this group—

Eric Illsley: Order. That Government amendment is in a separate group. It will be debated after amendments Nos. 73 and 71.

William Cash: Thank you, Mr. Illsley.
 Question put, That the amendment be made:—
The Committee divided: Ayes 7, Noes 10.

Question accordingly negatived.

Sally Keeble: I beg to move amendment No. 82, in page 49, line 37, at end insert
'; and an approval required to be obtained by virtue of a restriction entered on the register of title kept by the Chief Land Registrar is, so far as relating to a long lease of the whole or any part of any premises, to be treated for the purposes of this Chapter as an approval under the lease.'.
 If it is any comfort to the hon. Member for Stone, I was informed only late in the day too. This is a technical amendment to prevent an anomaly in the approvals regime that the Land Registry has highlighted. As hon. Members are aware, clauses 96 and 97 make the RTM company responsible for the granting of approvals under long leases of the whole or any part of the premises that are subject to the right to manage. The Land Registry has alerted us to the fact that a requirement under a lease to obtain a consent can sometimes be replicated by identical restrictions applied for and entered on the land register in section 58 of the Land Registration Act 1925. The practical effect of such a restriction on the register is that the Land Registry must satisfy itself that a consent has been obtained as required by the restriction, before it can proceed to make the relevant change on the register. Furthermore, the registry will have to be satisfied that the consent has been obtained from the person named in the restriction, which could often be the landlord. 
 This restriction would therefore frustrate the intentions behind clauses 96 and 97. We can envisage a scenario in which a leaseholder has obtained approval from the RTM company in accordance with clauses 96 and 97, but then needs to approach the landlord separately for consent to satisfy the restriction on the register. That is clearly undesirable. There would therefore be a parallel consent regime, but one that required consent for the same thing from different people. The amendment would rectify that anomaly, and I hope that the Committee will agree to it.

William Cash: I am grateful to the Minister for bringing this forward. It is obviously on the advice of the Chief Land Registrar. Not only do we have this Committee in common, Mr. Illsley, but fairly recently we were together on the Land Registration Bill. Even before that, although I hesitate to refer to this extremely contentious matter, there was what is now described as an arrangement in a brewery at a football ground not far from your constituency. I served on a Committee
 for about eight weeks on that matter. We have become accustomed to having to deal with extremely contentious issues. However, the matter before us is not contentious. If an amendment is required to the land registration legislation to accommodate the arrangements set out in the Bill, and there are one or two other matters where amendments have been tabled that affect land registration, I should be grateful if it could be slotted in at the right place so that that Bill can be in shipshape form on Report. I am grateful to the Minister for her explanation.
 Amendment agreed to. 
 Clause 96, as amended, ordered to stand part of the Bill. 
 Clauses 97 to 100 ordered to stand part of the Bill. 
 Schedule 7 agreed to. 
 Clauses 101 and 102 ordered to stand part of the Bill.

Clause 103 - Cessation of management

Sue Doughty: I beg to move amendment No. 12, in page 52, line 36, after 'passed', insert
'by not fewer than 51 per cent. of the members of the company, voting in person by secret ballot.'.
 The amendment is similar to an earlier one. We took note of the discussion on that but we still have some points to make. If a company is to be wound up, many people will have an interest in it. Without a quorum of 51 per cent. of the members, such a decision would not be democratic. We propose the amendment in the interest of fairness to all tenants and to avoid winding up a company on the vote of a small majority. We use the phrase 
''in person by secret ballot''
 but we would be swayed if an amendment on Report specified postal and proxy votes, as long as secrecy was maintained.

Sally Keeble: The amendment relates back to one of the principles that I set out earlier. We are drawing on existing law for the company and the contracts. Clause 103 specifies the circumstances in which an RTM company ceases to be entitled to exercise the right to manage. Amendment No. 12 would have the effect of imposing a particular resolution procedure on the RTM company. We do not consider that to be necessary. Indeed, some of the voting figures look rather different when one considers existing procedures. We intend to set out in the articles of association the voting procedures for the RTM company. We see no reason for departing from the normal procedures of company law in this area to insist that a voluntary winding-up resolution should be conducted in person or in secret.
 Any resolution for winding up the RTM company would need to be by special resolution. A special resolution needs to be passed by a majority of three quarters of those voting at the meeting at which it is proposed, or in a ballot. In some circumstances the amendment would require a larger absolute number of 
 members to support the resolution, because it requires a majority of all the members of the company, not just of those voting, but we believe that the normal procedures of company law provide sufficient protection and should apply in this as in a number of other areas. On that basis I hope that the hon. Member for Guildford (Sue Doughty) will withdraw her amendment.

Sue Doughty: I thank the Minister. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 103 ordered to stand part of the Bill. 
 Clauses 104 to 108 ordered to stand part of the Bill.

Clause 109 - Notices

Sally Keeble: I beg to move amendment No. 83, in page 55, line 6, at end insert 'or'.

Eric Illsley: With this it will be convenient to take Government amendment No. 84.

Sally Keeble: This is a technical amendment removing an inconsistency in clause 109, which as Members will know, relates to the right to manage. Amendment No. 84 removes the reference to the Land Registration Act 1925. As Members will know, the Land Registration Bill is currently before Parliament. Some Members present were involved in the discussions on that. It will repeal the section to which clause 109 refers, which makes the reference redundant. Amendment No. 83 is consequential.

William Cash: I am happy with the amendment as it stands. I have no doubt that it will stand the test of time, but we will have to see.
 Amendment agreed to. 
 Amendment made: No. 84, in page 55, line 10, leave out from 'rent' to end of line 12.—[Ms Keeble.] 
 Clause 109, as amended, ordered to stand part of the Bill. 
 Clauses 110 to 112 ordered to stand part of the Bill.

Clause 113 - Non-residential premises

Question proposed, That the clause stand part of the Bill.

William Cash: Because of the formalities of moving amendments in these Committees in the Commons, as compared with the Lords, my amendment on the Order Paper, which seeks to leave out clause 113 altogether, can be taken as such but I cannot move it. My remedy is to move the debate on the question that the clause start part to a Division. I do not believe that the Minister is in any doubt as to my intention. The clause proposes to amend the restriction on the right to enfranchisement, contained in section 4(1) of the 1993 Act, from the current threshold of 10 per cent for non-residential premises to 25 per cent. It is apparent that this is an important matter. I know that it has already been discussed in the other place, but we
 should have a reply from the Minister in the light of my arguments.
 I take exception to the clause for several reasons. There is much compelling evidence from the industry, those in property development, and others who know about these matters that developers and investors would be reluctant to develop mixed schemes if there was a likelihood, or risk, of enfranchisement of the premises as a result of the new threshold of 25 per cent. for non-residential use in place of the 10 per cent. threshold. Their views are based on experience, and we should take account of them. 
 When I did my legal practice before entering the House, I advised the oil companies on the Petroleum and Submarine Pipelines Bill. It became obvious, with the best will in the world, that although the Government had a view about how to regulate North sea oil, in practice those on the ground in the commercial field knew most about it. That Bill was amended extensively, as the Labour Government of the time recognised that the views expressed by commercial interests were driven not only by a desire to make an extra profit, but by an understanding of the practicalities. I apply a similar principle here. The provisions will not work if those to whom I referred are not prepared to invest because they believe that their investment lacks security or will be vitiated by uncertainty because of the likelihood of enfranchisement. 
 The bottom line is that all that would have a serious detrimental effect on the prospect of redevelopment or on the development of mixed property schemes, which in turn would adversely affect actual and potential urban regeneration schemes. Such buzz words occasionally emerge. I imagine that those who want urban regeneration schemes would want to avoid such a consequence, which we and, I am sure, the Labour party also want to avoid. There is no great Machiavellian plot behind all this. It is simply a question of whether there will be the right investment in urban regeneration schemes, among other things. Will the clause be an incentive or disincentive? 
 My experience of North sea oil regulation was similar in that there was also a question about the regime that was being set up. We can get the Bill quite wrong by taking a figure, in this case 10 per cent. rather 25 per cent, that could make a substantial difference. I will be interested to hear what the Minister has to say in the light of what was discussed in the other place. This is not just a legal issue, but a policy issue. 
 I am also concerned that the clause may have a retrospective effect in relation to mixed-use premises, which, where non-residential use is between 10 per cent. and 25 per cent., would face enfranchisement under the clause, even though they made their investment when no such risk existed. The clause could undermine existing investment in mixed-use premises. I do not know whether intensive discussions have taken place behind the scenes between the Department and the developers. I am not aware of that: perhaps the Minister would confirm that discussions have taken place. 
 People who are residential enfranchisers are not likely to want to become commercial property managers, and they are not usually candidates for that. If enfranchisement were allowed in cases where non-residential use exceeds 10 per cent., the effect could be harmful to business occupiers, and for the marketability of the property as a whole. To a significant extent, that could depend on the value of the business forming a major part of it. I would be interested to hear what the Minister has to say in the light of the deliberations in the other place.

John Taylor: I speak not to any particular clause, but to chapter 2, which begins on page 58. I realise that party business managers may have intended to bring the proceedings swiftly to a conclusion today. I shall not take it as a discourtesy if the Adjournment is moved before I have finished. That would enable me to resume the Floor when the Committee meets next.
 I say to the Minister, and to those who advise her, that a law is heading for the statute book that will affect all our constituents. Many people with long leases will aspire to participate in the ownership of the freehold: I am one of them. The real weakness of the 1967 legislation, which was the first visitation of enfranchisement known to English law, was that it did not give clear guidance to the affected citizens as to what price they could expect to pay for the freehold. Lacking guidance, our constituents were obliged to litigate in the Lands Tribunal, or at least those who could afford to did so. A pattern of decisions emerged that served as guidance or precedent to others. We have a classic opportunity, and if the Minister returns to it when the debate resumes, I would like her to reassure the Committee that we are helping our constituents and the residents of this country by not merely giving them a right but a clear indication—

Shona McIsaac: In north-east Lincolnshire, 21,000 residents occupy leasehold houses, which will be affected by the measures in the Bill. If the hon. Gentleman examines the amendment paper, he will see that I have tabled an amendment that would require freeholders to detail how they have derived the purchase price of the freehold. I fear that they often merely pluck a figure out of the sky, and our constituents are none the wiser. I hope that the hon. Gentleman will think about discussing that amendment at a future sitting.

John Taylor: It may not surprise the Committee to know that the hon. Lady and I have compared notes. My present disposition is probably to support her with my voice and perhaps also my vote when the time comes. I am developing the theme that it is not adequate for the Committee, the House of Commons and Parliament to give our citizens the right to acquire something extremely important—for 99 per cent. of people, the most valuable single asset that they will ever own—only on a freehold basis. It is wonderful to do that, but it falls short without a pretty clear definition of the price mechanism. That is in the interests of the reversioner or landlord as well as the leaseholder. It is in the interests of all that the position be fair.
 I do not want the price or valuation mechanism to be out of kilter and favour the leaseholder or the reversioner; it should be fair to both. After all, the landlord is losing something that he truly owned, and I suggest that none of us is in favour of confiscation. There should be a proper valuation. A proper consideration, as we lawyers would say, should pass from one party to the other for the enfranchisement from leasehold to freehold. 
 I have probably developed the point sufficiently both now and when I have had the benefit of having the Floor previously. I merely ask the Committee to join me in begging the Minister to ensure that the legislation goes on to the statute book with as much clarity as possible on what the leaseholder should expect to pay the landlord, and what the landlord can expect to receive from the leasehold for that state of grace when the leaseholder becomes freeholder or part-freeholder. That is my plea. It is not technical, although it may be considered political. It would certainly take public policy in a good direction if the situation were as clear as possible to all concerned. The only gainers otherwise will be the professional people who handle the disputes before tribunals and in law courts. 
 I am therefore speaking against members of my own profession. I do not want them to have any work from disputes at all. They can do the conveyancing, but I do not want it to turn into litigation. I once worked for a firm where the conveyancing files turned into litigation files and I did not stay there long; I did not like the attitude. We do not want to create an arguing ground; we want to create a benefit that will work, with the good interests of both sides properly catered for. As I have said, my plea is not technical and scarcely political. In fact, I am talking plain common sense.

Sally Keeble: The clause amends the existing commercial limit that prevents leaseholders from buying their freehold if more than 10 per cent. of the property is for non-domestic purposes. That limit was set by a Conservative Government and was, I believe, retrospective. Clearly, there is an issue about resolving priorities, and some people might have liked us to go further.
 I think that the hon. Member for Stone was being somewhat disingenuous when he referred to the impact on regeneration. He did, however, ask whether that has been discussed with the property industry, and I can assure him that it has. As one would expect, some people were unhappy with the proposals, but they will not have a substantial impact on the development of mixed-use schemes. In future, it will be open to developers to apply common law to such schemes. Some of the hon. Gentleman's assumptions about conflicts of interests and disputes do not apply in this case. 
 In our view, existing limits are too low and unfairly prevent too many leaseholders from enfranchising. If the commercial unit has a majority interest in a building, a 25 per cent. threshold will protect the landlord. If the leasehold has the majority interest, it is right that it should be able collectively to buy out the landlord. It has been argued that raising the 
 enfranchisement threshold from 10 to 25 per cent. will discourage mixed-use developments. If that claim had a rational basis, it would be a legitimate cause for concern. However, on the basis of discussions and consultations in the Department, the problem has not materialised. 
 Leaseholders enfranchise in order to address either or both of the problems of diminishing leases and the landlord's monopoly over the management of the block. We have already debated the right to manage. Any enlightened developer planning a new scheme will want to give careful thought to ensuring that future occupants will be satisfied with their home. 
 For future developments we hope that many, if not all, new mixed-use schemes, as well as solely residential ones, will be carried out on a commonhold basis, which we debated extensively on Second Reading. That would ensure collective management from the outset, and avoid the problem of diminishing assets. It would also allow the developer to retain ownership and therefore management of the commercial unit if it wished. Raising the commercial threshold deals with problems encountered by leaseholders in existing mixed-use blocks. Commonhold provides a perfectly satisfactory solution for new developments, so I do not see why our measures would discourage new development. The concerns expressed are based on a misunderstanding of our position. 
 The hon. Member for Solihull asked about valuation. The clause does not deal specifically with it, but the theme applies to many issues, so I shall respond to it. The hon. Gentleman argued for a 
 formula basis for valuation. Much work was done to produce a basis for determining price and valuation, but research concluded that it was not practicable to produce a fair formula. We have, however, tried to simplify the valuation process, which will be debated again later in the Bill. I am not sure whether the hon. Gentleman will be present then, but I shall ensure that he receives any detailed information on the subject.

John Taylor: I am grateful to the Minister for the tone of her response, but I must tell her with a degree of irony that when she says that research failed in the end to find a formula, she should know that exactly the same was said in 1967.
 Question put, That the clause stand part of the Bill:—
The Committee divided: Ayes 10, Noes 7.

Question accordingly agreed to. 
 Clause 113 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Mr. Stringer.] 
 Adjourned accordingly at Four o'clock till Tuesday 22 January at half-past Ten o'clock.